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26 I Cover story bne November 2017
bne IntelliNews
Central and Eastern Europe (CEE) is booming. It seems
the last vestiges of the Great Recession are wearing off and a pan- regional recovery is underway, driven by growing demand, higher investment and use of the competitive advantages most of countries still enjoy from low wages and a hunger to catch up with their western peers.
But the pace of growth is also causing problems. Inflation is rising fast in many of the CEE countries, pushed up by wage gains driven by a growing labour shortage across the patch. It seems that many of the countries are reaching full capacity and the point where they need to start changing their model from a
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low-wage export-driven strategy to an added-value, domestic-demand model. The CEE countries are already starting to be challenged by the Southeastern countries, but their lack of productivity and poor infrastructure means Central Europe still has some time to meet these challenges.
In the meantime life is good for the citizens of the central European countries. Growth is strong in all the Central European countries and
accelerating in the three Baltic countries after a slow year in 2016 – the year of the “silent crisis” for many.
The Baltics are leading the charge. Lithuania's economy is expected to
grow 3.5% this year. Latvia is seen as managing growth of 3.8%, while Estonia – the regional laggard for the past
two years – is likely to post economic expansion of 4%, the International Monetary Fund (IMF) said in its latest World Economic Outlook published
on October 10. Growth in the Baltic states will be faster than the average expansion of 2.1% and 1.9% predicted for the Eurozone in both 2017 and 2018, respectively.
The faster growth in the Eurozone reflects “an acceleration in exports in the context of the broader pickup in global trade and continued strength in domestic demand growth supported
by accommodative financial conditions amid diminished political risk and policy uncertainty,” the IMF wrote.
From the big countries, Poland’s econ- omy is also roaring. The headlines have been dominated by the illiberal machina- tions of the ruling Law and Justice (PiS) party and mass street protests in recent months, but as far as economic manage- ment goes the government is doing a good job. The third quarter saw a raft of impressive results: investment activ-
ity rebounded significantly, industrial output increased by a strong 4.3% y/y, construction output soared 15.5% y/y, and retail sales ballooned to 7.5% y/y, according to Raiffeisen Bank Internation- al (RBI), which says Poland is enjoying
a Goldilocks combination of growing consumption and even faster investment growth. And the stories are the same in Hungary, Czechia and Slovakia.
Building boom
Real estate is one of the sectors where the boom is most obvious. In Czechia prices and demand have skyrock-
“CE still has the advantage and remains the “factory of Europe,” but that won’t last forever.”